A Poker Champion Explains Why You Make Bad Business Decisions

Stephen J. Meyer
, ContributorI share insights to help executives, and their people, learn and growOpinions expressed by Forbes Contributors are their own.

Do you feel like a genius when your company is on a roll? And make all sorts of excuses when you’re struggling? If so, Annie Duke would like a word with you.

I recently met Duke, whom you may know as the third highest-earning female poker player in history. But you might not know that she pursued a Ph.D. in psychology at the University of Pennsylvania prior to her poker career. And that she has acute observations about executive decision-making, which like poker requires doing the right thing in high-stakes situations with imperfect information.

Duke says that in her two decades on the World Series of Poker circuit, she met many players who "scaled the learning curve, then flattened out at mediocre. You’d see people making the same bad decisions for 20 years over and over.”

The biggest trap they fall into, Duke says, is that they judge their performance based on outcomes. “If they win, it’s because they made good decisions. If they lose, it’s because they were unlucky.”

That mentality, according to Duke, is the kiss of death for any high-stakes decision maker, in poker, in business, and no doubt in all areas of our lives.

Duke says that humans are wired to “connect the dots, to find causality.” She describes how she’d try to read poker players who bet aggressively when she had decent but not great cards. In some instances – based on her years of experience, her knowledge of the player’s history, and his current behavior – she’d “connect the dots,” conclude he was bluffing and go all in.

“If I found out he was actually holding aces, I learned never to blame bad luck. After the game I’d replay that hand in my head, review all the variables and try to see whether the math was really on my side. If it was, I’d conclude I did the right thing. If it wasn’t, I’d ask, ‘What can I learn from that?’ ”

What she just described is “outcome blind” analysis of decisions. Duke insists that all great poker players think this way. In fact she says she had a small peer group of elite players who regularly got together and talked shop. “When we told each other ‘the story of a hand,’ we wouldn’t mention whether we won or lost. It was all about the behaviors, the variables, the decisions – not the outcome.”

(Image courtesy of Annie Duke)

Duke believes business executives can learn from her outcome-blind approach to decisions. “The key is to create a culture where you take pride in your decision-making process so you can deal with bad outcomes,” she says. “When you make an important business decision, the probability of failure might be 25% or more. Just like in poker, you always have incomplete information, so the outcome is to some degree out of your control. But the process is in your control.”

At your company, the equivalent of Duke’s elite peer group is your executive team. Your best protection against bad decisions is a rigorous decision-making process that ensures the math is on your side. Duke says, “If you discuss all the variables, and get buy-in from the entire team on the probabilities assigned to each of those variables, people feel good about the intellectual honesty and the quality of the decision-making process.”

Duke bristled a bit when I suggested that senior executives make big decisions less frequently than poker players, and that they might object to subordinating outcome to process. “On TV you only see 5% of the poker hands,” she said. “The 95% you don’t see are low-stakes and boring, but just like most decisions in business those little decisions add up. It comes back to having a strategy for evaluating decisions, both big and small, regardless of outcome.”

In bad times outcome-blind self-evaluation requires the confidence to believe good decisions sometimes yield bad results. In good times it requires the wisdom to tune out surround-sound adulation, which comes at you from all directions. Sources include:

1. Yourself: The narrative we desperately want to believe is that, “I caused my success. It was inevitable because … I am me.”

2. Investors: Their Buffett-like instincts are validated by regular distributions – all thanks to you.